Stewardship and ESG integration
We have implemented sustainability considerations into our investment process. We believe the consideration of ESG issues will lead to better risk/return outcomes, which will ultimately improve long-term returns for investors.
Corporate governance is a particular focus, where board independence as well as respect for shareholder rights is of paramount importance. We also consider any specific sustainability initiatives implemented by a company and the environmental impact of existing assets and developments. A company's history as a good corporate citizen is taken into account, as well as evidence of meaningful contributions it might have made to benefit society more broadly.
Assessment and monitoring
We have developed a tailored ESG framework that is part of our stock review process. When an analyst reviews a property company, an ESG review will also be done. While the primary source of ESG information is company dialogue, the team also utilises Sustainalytics and MSCI Governance Ratings to streamline the sourcing of data and information. Despite sourcing third party research, in-house research remains the most important source of reference when integrating ESG considerations into the investment process.
ESG issues are assessed using a two-pronged approach. Firstly, ESG considerations are one of the variables in the initial screen that we use to determine our defined investible universe. A low ESG score (in combination with low scores on other factors) can lead to a stock being excluded from our investment universe.
Secondly, each company in our universe is rated on specific ESG factors. These are used in determining the beta in the capital asset pricing model, which directly impacts our valuation of a stock. The higher the team rates a company's ESG profile, the lower the beta, which leads to a higher target valuation. This outcome would make it more likely that we would invest in the stock.
We are firm believers in investor rights and take a proactive stance on ESG issues, especially with regards to corporate governance. Communication with CEOs and board members is undertaken where it is deemed appropriate in order to try and influence and enforce change.
We believe that a strong commitment to stewardship is an essential component of a strong approach to responsible investment (RI), and that embedding RI into the core of our investment activities is in the best long-term interests of our clients. For more than a decade we have systematically and progressively improved our practices and processes across our investment capabilities globally.
The section below provides addition, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement.
Team Climate Change Statement
Our investment process prioritises the protection of our clients’ capital. We focus rigorously on investigating downside risks to each company. In considering downside risks we need to be aware that issues such as climate change can impact stocks in the near, medium and longer term. The nature of property assets is inherently long term (although the price at which securities trade can have the volatility of the equity market). Climate change is a very important issue for a long duration asset. We discuss how each company prioritises potential impacts of climate change and how they plan to cope with the changing face of regulation and consumer demand.
Proxy voting history by type of resolution
The table below contains the proxy voting history for the team by issue type. The chart provides the same information for FY2019.
The chart below shows the number of times the team has voted against management recommendations, proxy advisors' recommendations, or against both. The purpose of this table is to show the independent judgement which is applied by the team when making voting decisions.
Proxy voting by region
The chart below shows the number of times the team has voted in each region and the percentage of votes against management and our proxy advisors' recommendations, or against both. The purpose of this table is to show the regional difference in voting patterns and governance concerns.
Proxy voting information is as at 31/12/2019
Source: First Sentier Investors / CGI Glass Lewis
(Source: First Sentier Investors Responsible Investment & Stewardship Report 2019)